Weekly Market Commentary

By @MihrThakar

Verily the bull market is nought but living. However, volume dipped slightly with 120.3 million shares traded as compared to the previous week’s 172.5 million (-30%). Total turnover also stepped down marginally to Kshs. 3.1 billion from Kshs. 4.0 billion (-24%). All the main indices soared. NSE 20 climbed to 4069.20 (+1.91%), the broad NASI came to rest at a height of 172.31 (+4.30%) and the NSE 25 also climbed up to 4538.21 (+2.82%). A period of ‘3 babies’ has not seen this type of a rally.

Local investors are increasingly active in the bourse with the current rallies. The bear market was dominated by foreigners.

Telecommunications Sector

Safaricom Kshs. 26.50 (+9.28%) zipped through the market in a convoy of 37,906,200 shares. The ticker touched all-time highs of Kshs. 27 during the week. Immense value creation has taken place. The share fell to all-time lows of Kshs. 2.40 early in 2009, halving its IPO price of Kshs. 5, much to the chagrin of the initial subscribers. If you would have bought 10,000,000 shares in those dark days, worth Kshs. 24,000,000, which would have been the cost of a good house at that time, you would now be holding Kshs. 265,000,000 worth of green shares. That’s a return of a whopping 1,000%! The company is set to grow even further. With the expected launch of its Amazon like ecommerce website (which may even turn into a gargantuan Alibaba like website), a ‘new MPESA’ is going to come forth. Another cash cow. The company’s expansion beyond Africa is also imminent.  Acquisition by Vodacom Group of an effective 35% stake in Safaricom, will enable the telecommunications giant’s board to be more aligned towards its African interests and expand more easily into the lucrative continent. This share can break Kshs. 100 in the long-term if earnings are increased to Kshs. 5 per share, but expansion may also require additional capital.

Banking Sector

Equity Kshs. 43.50 (+1.16%) moved 7,665,600 shares. Half year results posted a 14% growth in assets to reach Kshs 504.9B up from Kshs 444.4B for the period ended 30th June 2017. The Group also continues to concentrate on Asset Quality that has seen it achieve NPLs of 7.3% against an industry average of 9.9%. It has positioned itself for the future by increasing its liquidity to 54% and creating an agile balance sheet with government securities contributing 23% of the total balance sheet.  Despite the marginal profit drop, investors are keen on this counter due to the underlying company’s digitization initiatives.

KCB Kshs. 45.50 (+3.41%) traded 5,236,900 shares. KCB Group posted a pre-tax profit of KShs. 14.75 Billion for the first half ending June 2017, helped by a strong performance of its core retail and corporate business, non- interest income and lower interest expense. Following these results, the Board of Directors considered and approved payment of an interim dividend of KShs 1 per share. KCB has over the past three years pursued a strategy which departs from the traditional bricks and mortar banking channels to non-branch channels, particularly digital platforms, including internet, agency, mobile banking, and cards.

Co-operative bank Kshs. 16.95 (+4.63%) saw the exchange of 2,779,900 shares. The tier one lender intends to embark on a joint venture with Super Group Limited, a South African leasing company. It intends to increase its assets by leveraging on government expansion projects as well as exploration and mining activities. A target of Kshs. 17.50 is not akin to getting a tax refund from KRA.

NIC Kshs. 37 (+2.07%) saw 838,800 shares exchange hands. NIC Bank Group reported a pre-tax profit of KES 2.92 billion, for the first half of 2017, compared to KES 3.22 billion the prior year. This marked a 9.3% year on year decline, driven by a reduction in lending margins as a result of the Banking Amendment (2016) Act (“Rate Cap”). Investors considered this within the industry average as the bulls continued gobbling up shares.

HFC Kshs. 11.65 (+1.75%) did not spend much time on the ground floor despite a massive profit drop. This shows trader’s confidence in the tier two lender’s future earnings capability. It is unclear whether this is going to occur under the able leadership of Mr. Frank Ireri or a newcomer.

Commercial and Services

Kenya Airways Kshs. 4.60 (-7.07%) lost altitude on heavy volume of 2,691,800 shares. The carrier won the court battle against the three banks opposing its capital restructuring, which would see a total of 11 banks convert their loan advances of Kshs. 23 billion into a 37% equity stake in the troubled carrier. The banks opposing the restructuring were Equity Bank, Jamii Bora Bank and Pan African lender Ecobank. A massive dilution of 95% is looming for ordinary shareholders, however this is the only alternative to liquidation and therefore it should not floor the share price.

Uchumi Kshs. 4.00 (+1.27%) experienced the barter of 1,248,900 shares. Full year results are likely to be pleasantly surprise and a target of Kshs. 4.50 is not akin to going to a Nakumatt store of late and finding whatever you need. However, the listed supermarket chain has very serious cash flow difficulties which see it even fail to pay its workers.

Nation Media Group Kshs. 115 (+0.88%) flipped through 516,000 shares, fairly stable on the shore of its dividend books closure date.

TPS Serena Kshs. 28.75 (+12.75%) saw a massive rebound on thin volume of 54,900 shares. HY 2017 loss before tax was Kshs. (230,786,000) vs. Kshs. (74,156,000), which was a 211% increase in the loss. However, Nairobi Serena was operating at only 46% of its inventory due to refurbishments. Its full year earnings may likely report a profit, as tourism continues to rebound after the well managed election. Last year, similar occurrence took place whereby HY 2016 saw a loss of Kshs. 57,627,000 while the full year results reported a profit before tax of Kshs. 325,301,000.

Construction and Allied

Bamburi Cement Kshs. 191 (-4.02%) produced movement of 556,800 shares. Its half year results were quite disappointing. Turnover decreased by 8% to Kshs. 17.5 billion from Kshs. 19.1 billion in the period ended 30th June 2016. EPS stood at Kshs. 4.39 as compared to Kshs. 7.15 (-38.6%). Interim dividend was reduced for the first time in four years to Kshs. 2.50 from Kshs. 6 in a similar period. While the profit drop was tolerable, the reduction in the pay-out will not be sustainable for shareholders. Its reduced profitability can be attributed to the following factors:

  1. Low private sector investments and delayed infrastructure projects
  2. Higher global coal prices
  3. Higher electricity costs due to drought
  4. Increased competition from companies like Mombasa Cement Limited
  5. Decreased interest income on bank balances due to the prevailing bank rate control

Energy and Petroleum

Kengen Kshs. 9.70 (+4.86%) transmitted 21,603,200 shares while its main customer KPLC Kshs. 11.60 (+14.29%) saw a surge in volume to 16,131,200 units. I strongly believe KPLC should have a price of Kshs. 18 or higher.

Kenolkobil Kshs. 16.75 (+8.41%) met its dividend books closure date on thin volume implying a shortage of float in the market.

Insurance Sector

Britam Kshs. 15.10 (-0.33%) saw new buyers lay claim over 1,111,000 shares. Its half year results, despite being an utter disappointment saw it only go as low as Kshs. 14.85 during the week. Pre Tax Profit declined by 55.4% to Sh 1.3 Billion  from Sh 2.9 Billion as of June 2016 even as total income increased by 16% to Sh 14.7 Billion compared to Sh 12.7 Billion in the same period last year. The increase in total income was on the back of increased gains on financial assets at fair value through profit or loss, amounting to Sh 1.1 Billion. The plunge in profit was mainly attributable to an 84.8 % increase in net insurance claims and benefits to Kshs. 6.7 billion. Total expenses also increased 33%. However, this was a seasonal spike in claims and the financial year results are likely to be boosted heavily by the prevailing stock market conditions.

CIC Kshs. 6.20 (-0.80%) remained fairly stable on robust volume.

Investment Services

NSE Kshs. 22.25 (-6.32%) saw 847,000 shares pass meaningfully through the board. The Nairobi Securities Exchange reported its Half Year 2017 results as operating income grew by 5.9% to Sh 282.6 Million. The bottom line was affected by an increase in administration expenses which were up by 8% leading to a 5.1% decline in net profit to Sh 77.77 Million. The increase in administrative costs was attributed to costs related to the setting up of new products like the derivatives market, M-Akiba bond and Exchange Traded Funds. With heavy volumes and soaring prices, the stock exchange is likely to report robust full year results.

Sources: (The Standard, Rich Management, Kenyanwallstreet, Equity Bank, KCB, Financial Times)